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Credit Card

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A credit card is a thin plastic card, roughly three by two inches
in size, which is used by consumers and companies to make purchases. It
contains account and identification information on the magnetic “stripe”
that is on the back, although some future cards now being developed
will use embedded microchips and RFID (Radio Frequency ID).

The financial company that releases a credit card to cardholders
provides them a line of credit from a place that those people may have a
loan of currency for payment to a business or also an advance of cash. A
credit card with a “revolving line of credit” is not the same as a
traditional charge card in which the charge cardholder pay the balance
every month. Credit cards, on the other hand, allow consumers to revolve
the balance owed for the cost of interest payments.

Card Issuers

A majority of credit cards are issued by local banks or credit
unions. When a credit card provider approves an account application, a
credit card is issued, after which time cardholders may use the card to
buy things at businesses that accept that brand of card. Today, the
information on a credit card can be read by automated teller machines,
retail store credit card terminals as well as bank and
Internet-connected computers.

At the time that a purchase is made, the credit card user agrees to
pay the credit card issuer at a later date. A cardholder shows their
approval to pay when they sign a paper or electronic receipt with a
record of the credit card and purchase details that also indicates how
much is paid. The cardholder can also indicate such agreement when they
punch in a personal identification number into a keypad. In the case
when a cardholder or the credit card itself is not present, many
merchants also allow vocal authorizations through phone and electronic
authorization online, which is called a CNP transaction.

Security and Verification

Many electronic credit card verification systems in operation today
enable a merchant to authenticate credit cards and ensure that there is
enough credit to make a purchase, which happens briefly when they
purchase something. The authentication is done by means of a credit card
terminal with a communications connection to the acquiring bank of the
merchant. Information that the card has is rendered from a magnetic
stripe on the card. It also comes from a chip in the case when chip
cards or smart cards are used.

Additional verification systems that e-commerce merchants use, for
which the cardholder usually gives more information, like an AVS
security code or the cardholder’s street address or address of record
that matches their credit card bills.

Payments and Problems

On a monthly basis, a credit card user will be sent or e-mailed a
statement that documents all purchases made with the credit card, along
with any fees and the amount that they owe in total. The cardholder has
to pay a specific minimum amount from the bill on the date that it is
due. They may alternatively to pay a larger amount or the full amount
that they are in debt for. Interest is charged on the amount owed if
the balance isn’t completely paid. Some banks allow for automatic
payments which can be taken away from a cardholder’s bank account. After
receiving the statement, the cardholder is allowed a right to dispute
any charges that he or she thinks are incorrect.

There is a great deal of competition among credit card companies and
card-issuing institutions, which ultimately benefits the consumer with
lower interest rates, added benefits and cash back opportunities.

The “grace period” for a typical credit card is the period that a
cardholder must pay off the what they owe ahead of the time when
interest will be accrued on top of the balance. These periods vary from
twenty to forty days, relative to the issuing bank and the credit card
variety. If the grace period has been passed, some account service
policies provide for customers to regain their credit cards services
once again after specific conditions are fulfilled.

Fees and Penalties

In general, if a credit cardholder pays late, finance charges are
tabulated, negating the period of “grace.” A growing number of credit
cards offer do not offer a grace period when there is any amount owed
from prior bills. There are, on the other hand, a few credit card
companies will strictly enforce finance charges on the old balance, and
not new transactions.

There are a number of crucially important benefits that the advent
and use of credit cards have created for merchants today. For one thing,
credit card transactions are certainly safer than taking personal
checks, since the issuing bank is entrusted to pay a business when the
card transaction becomes authorized, no matter if the cardholder does
not make the payment for their credit card. Also, credit cards are safer
than cash, as they dissuade pilfering by the employees and keep the
amount of cash on hand small at the retail location for potential
robberies. Before there were such things as credit cards, merchants had
to evaluate credit history of all of their customers before providing
any credit whatsoever. Today, of course, banks incur all of the risk in
these transactions.

Merchants are charged by the bank what is known as a “discount fee”
for their credit card services and for managing the risk factors. In
some cases, often some times passes before the merchant receives the
payment. The discount fee commission is a small part of the transaction
amount, in addition to a set charge determined when a merchant signs up
for the account. A merchant may be disciplined, or be prevented from
receiving payment from the specific credit card in question and their
account use greatly controlled, if there are a sizeable number of
“chargebacks” emerging from customer disputes. A few businesses require
credit purchases to be a minimum amount to make up for the processing
expenses, though this is not allowed by the credit card associations.

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